AVAX goes deep into the overbought zone after rising 100%. Will there be a correction?

The Avalanche blockchain platform’s native token, AVAX, fell on August 19 as merchants determined to take income after its 100% rally.

AVAX / USD fell greater than 16% after hitting a three-month excessive of $ 36.64, slowing a seven-day bull increase of 111%. It seems that merchants are uncomfortable shopping for AVAX close to $ 36 as that is the degree of the historic sell-off that capped AVAX’s earlier March to May restoration makes an attempt.

Overvaluation danger

AVAX additionally fell on short-term overvaluation considerations. The day by day relative power index (RSI) exceeded 70 throughout a bullish increase. In essence, the market views an RSI above 70 as overbought for an asset as the price has been overdone and a correction is more likely to observe.

AVAX / USD day by day chart | Source: TradingView

More proof of the short-term overvaluation of AVAX emerges when taking a look at the Bollinger Bands (BB) indicator. This indicator consists of the center band (20 durations MA) and two outer bands which can be positioned two commonplace deviations under and above the center band.

When the price exceeds its valuation in the brief time period, it tends to rise above the higher band. Similarly, a slide under the decrease band signifies that the asset is trading under its present valuation. After the final rally, AVAX exceeded the higher band of the BB indicator.

These two indicators additionally accurately predicted AVAX’s earlier corrections. For instance, throughout the February rally, through which AVAX rose greater than 500% in simply two weeks, the RSI and Bollinger Bands each issued transient warnings of overvaluation.

Price annihilated 65% of income over the subsequent three weeks to neutralize this overbought situation.

AVAX / USD day by day chart | Source: TradingView

Therefore, in the occasion of a correction in the direction of the 23.6% fib retracement help ($ 22.29) of the total correction, the price might fall from the excessive of $ 63.3 to the low of $ 9.62.

This 23.6% Fib degree additionally coincides with the horizontal help space, which provides to its significance.

Basic ideas

AVAX’s current price increase comes after it launched a $ 180 million liquidity mining incentive program to deliver decentralized monetary companies (DeFi) to its blockchain platform, together with the Aave lending platform and the Curve Finance decentralized change.

The AVAX rally got here as a prime rival, Ether (ETH) moved sideways. This is as a result of merchants are inclined to deviate from overvalued belongings in the brief time period with the intention to wager on belongings they contemplate undervalued.

You can see the coin costs right here.

Disclaimer: This article is for informational functions solely, not funding recommendation. Investors ought to analysis rigorously earlier than making a choice. We are usually not answerable for your funding selections.

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According to Cointelegraph

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